To counsel someone to get out of a stock just after a 30 per cent crash in the shares may be seen as the investment advice of the charlatan. Especially a stock like Interserve that crashed 20 per cent in November over the same issue and had collapsed by a third back in May when the issue had first arisen.
But while the horse has not so much bolted as gone steeplechasing over hedges in the next county, there are very good reasons to get as far away from Interserve as possible.
After three attempts at explaining what has gone wrong in its fledgling £450 million waste incineration business — four, if you include a misguided statement of reassurance in August — Interserve yesterday admitted it could get even worse.
Interserve (market cap: £330 million) said that the provisions it is making for having entered and now rather rapidly exiting the energy from waste market — incinerators which capture gas to be used as fuel — have reached £160 million.
That compares to the £70 million cost that it highlighted in May, a number that the chief executive said in August would get “no bigger, no uglier”. The company was sticking to that figure in November even when it became apparent that it was going to be on the receiving end of some unpleasant litigation from Viridor, the main contractor, and Glasgow, where the £150 million renewable energy plant was not happening.
Yesterday it warned that “contractual obligation and the resolution of claims will continue” and it admitted that sorting this out — it has another five contracts — “will remain an area of critical focus for the foreseeable future” for management and an army of lawyers.
Oh, and average net debt will balloon to £450 million this year from the previously expected £275 million.
The chief executive, Adrian Ringrose, announced in November that he was off after 13 years. History will not treat Mr Ringrose well for this hubristic and catastrophic leap into a new market and it is going to be a big ask for someone else to pick up the Interserve pieces.
Recent sector history shows in the outsourcing game — think Serco and Mitie — investor sentiment does not repair itself quickly.
My advice Sell
Why The shares have already collapsed but the company can’t say whether the financial pain of its disastrous leap into a new sector is yet over
Hogg Robinson Group
It has always seemed the height of office decadence to continue to employ a corporate travel agent to book that train to Manchester or that flight to Frankfurt or even the cabs going up West. Get on the net and do it yourself — it’s what it was invented for — and you are bound to get a cheaper price and a more convenient passage.
Of course, all that takes a little while and means less time on the tweetdeck and that is why Hogg Robinson still exists, even though the days of easy pickings from the big City banks have long gone.
By its own admission in its third-quarter trading statement, corporate budgets are tighter and fewer people are travelling; it has been hit by a chunk of client defections; and it’s up against the rapacious competition of the likes of American Express and Carlson Wagonlit.
And there is a fundamental shift among clients to booking online with Hogg Robinson rather than speak to a human. At what stage do the customers wonder: why am I using an intermediary to book online?
But even with all that going on Hogg Robinson says that it is on target to hit pre-tax profits this year that should be about 10 per cent higher than last year’s £32 million.
As important is the debt reduction programme, which should make the company borrowings-free in 2018-19. That could herald share buybacks and/or dividend windfalls on a stock that is already yielding more than 3.5 per cent. Assuming the Hogg Robinson business model does not implode soon, it is worth hanging on in there.
My advice Hold
Why Tough times but investor returns appear secure
Bovis Homes Group
Would you buy a house from Bovis Homes where the windows don’t fit, there’s holes in the ceiling and they seem to have forgotten about the porch and the patio? Would you buy the home even if Bovis offered you a bung?
These shonky business practices led Bovis last month to admit that, with too many prospective buyers deciding this was an offer they could refuse, it would miss its completion targets. The chief executive bowed to the inevitable and accepted the invitation to bury himself in the corporate world’s equivalent of a concrete overcoat.
Yesterday we learned earnings per share dived 5 per cent to 90.1p.
So the question for investors is: would you buy shares in such a business? Bovis, in one way, is still offering the bungs in the shape of a 13 per cent increase in the dividend to 45p, which after yesterday’s 10 per cent share price slump to 755p has the stock yielding nearly 6 per cent.
The investment argument is that Bovis has a strong landbank and is cash positive and that means at these prices the company is an attractive takeover. But, as one analyst pointed out, buying in anticipation of a bid is gambling, not investing.
My advice Avoid
Why Some investments are not as safe as houses
And finally...
So what we have learned from the 48-hour bid battle for Unilever is that Downing Street might have been prepared to intervene to prevent unsavoury takeovers and avoid another Cadbury fiasco. Unless you are Arm Holdings, which fell to a Japanese raider last summer mainly because some in No 10 thought it was a prosthetics company, rather than a business crucial to the advance of the UK’s digital industries. So is the intervention rule based on whether voters have actually heard of the company being bid for?
